Israelis and Palestinians are closing out 2008 without reaching their stated goal of a signed peace treaty by year's end, leaving the task to a new U.S. administration, a new Israeli government and possibly a new Palestinian leader.

Three weeks after Barack Obama is sworn in as president, Israelis will hold elections in which hawkish former Prime Minister Benjamin Netanyahu is the front-runner. That could complicate U.S.-backed efforts to end a 41-year Israeli occupation and create an independent Palestinian state.

Palestinians disagree over when President Mahmoud Abbas' term expires, with the Hamas militants who now rule the Gaza Strip insisting he must step down in January. He looks likely to stay in office, but the fact that his forces control only the West Bank after Hamas' bloody takeover of Gaza last year is another major obstacle to peace.

If the negotiations between Israel and Abbas _ launched over a year ago at Annapolis, Maryland _ are to have any chance at all, they are sure to require intense U.S. intervention.

Many of Obama's top staff picks are well versed in the conflict: Chief of Staff Rahm Emanuel has Israeli background; Secretary of State Hillary Clinton's husband made a major push to forge a peace deal as president; and National Security Adviser James Jones for the past year has served as Mideast envoy in charge of improving the security conditions necessary for a peace deal.

Palestinians are hoping the Obama team will temper President George W. Bush's blanket support for the Jewish state and take a tougher line by pressuring Israel to stop expanding settlements on land the Palestinians claim for a future state.

Obama's options include opening a dialogue with Syria and Iran, countries that have long stoked the flames of the Israeli-Palestinian conflict, and trying to narrow the split between Abbas' Fatah movement and Hamas.

The parties began acknowledging months ago that they could not meet the one-year deadline set at Annapolis. Even if they succeed, it almost surely cannot be implemented until Gaza _ which along with the West Bank is supposed to comprise the future state of Palestine _ is reclaimed from Hamas, which opposes Israel's right to exist.

No one knows how that's supposed to happen. Perhaps the best case scenario will be a signed deal being presented to all Palestinians in a national referendum, with Hamas accepting the verdict. The worst may be Hamas deepening its stranglehold on Gaza, intensifying its rocket barrages on southern Israel and provoking harsh Israeli responses.

Many Israelis see a Palestinian state as a matter of self preservation _ the only escape from a demographic race Israel's Jews are bound to lose.

Even so, the issue of partitioning the land is playing only a small role in Israel's election campaign. Instead voters are focused on weathering the global financial crisis.

This is a mistake, argues Israeli writer Akiva Eldar.

"It's too bad Israeli voters will be lured into the net the politicians are weaving, which is nothing but a way of camouflaging dangers that are 10 times worse than a temporary financial shortfall," he wrote in the Haaretz daily.

"It's not the economy, stupid," he wrote. "This time, more than ever, it's peace and security."

Netanyahu supporters counter that concessions only invite trouble. They point to Israel's 2005 withdrawal from Gaza, which was followed by Hamas' takeover, an influx of weapons smuggled into Gaza, and the exposure of nearby Israeli towns to rocket fire.

Israel's conflict with Syria may be more ripe for resolution than its conflict with the Palestinians _ considering Hamas' control of Gaza and the extreme difficulty of cutting through such thorny issues as how to share sovereignty over Jerusalem.

Israel and Syria have been talking indirectly through Turkish mediators, though the negotiations were suspended after Israeli Prime Minister Ehud Olmert announced in September that he would step down amid a corruption scandal. Olmert, who faces a possible indictment on charges of bribery and illegal enrichment, has stayed on as caretaker prime minister until the election.

A peace deal with Syria would likely see the return of the Golan Heights, also captured in 1967, to Syria, provided Syria cools its alliance with Iran and stops supporting Hamas and the Hezbollah guerrilla movement in Lebanon.

Giving up the Golan would likely be less traumatic for Israel than handing over the West Bank to the Palestinians. That would mean uprooting tens of thousands of Jewish settlers, who, sensing the threat of eviction, are growing increasingly violent.

Israel views Iran as its biggest external threat, and speculation was rife in 2008 that it would attack Iran's nuclear facilities to keep that country from acquiring an atomic weapon. The year is ending with the issue unresolved and Israelis deeply worried about it, so an attack in 2009 cannot be ruled out.